Columbus McKinnon Corp (CMCO) 2026 Q3 法說會逐字稿

Good afternoon, and welcome to Columbus McKinnon's third quarter-fiscal 2026 earnings conference call. My name is Constantine and I will be your conference operator today. As a reminder, this call is being recorded.

And I would now like to turn the conference over to Kristy Moser, Vice President of Investor Relations and Treasurer.

Thank you, and welcome, everyone, to our call. On today's call, we will be covering our third-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, David and Greg will walk you through our financial and operational 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 of 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 may refer to certain non-GAAP financial measures. You can find 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, Kristy, and good afternoon, everyone. Last week, we were very pleased to announce that we closed the Kito Crosby acquisition. We have been working diligently over the past few quarters towards closing this transformational acquisition and are excited to now get to work on delivering the benefits associated with bringing these two innovative companies with industry-leading technical expertise, customer-centric cultures, and a shared vision for operational excellence together.

We are welcoming the Kito Crosby team to Columbus McKinnon as we combine the best of our collective talent and capabilities to deliver an enhanced value proposition for our customers. Additionally, we expect to close the previously announced divestiture of our US power chain hoist and chain operations by the end of this quarter. This will be the final step in aligning the combined company towards our next phase of growth.

Let me now shift to our quarterly results. As part of our permanent financing, which was recently completed at attractive interest rates, we preannounced key metrics for the third quarter and are happy to share that we came in at the high end of those ranges. We delivered double-digit growth in sales, orders, EPS and backlog year over year as we saw continued stabilization in US short-cycle order activity and capitalized on our strong project backlog. We continue to see an attractive global funnel of opportunities, and our backlog remains at healthy levels, positioning us well for the future.

Adjusted EBITDA was $40 million with an adjusted EBITDA margin of 15.4%. This margin was flat to the prior quarter as our tariff mitigation actions offset normal seasonality. Adjusted EPS improved 11% from the prior year to $0.62. Additionally, we made meaningful progress on operational improvement, tariff mitigation, and integration preparedness initiatives.

While it's becoming increasingly difficult to estimate tariff costs as vendor price increases begin to replace tariff-specific surcharges, we believe that we came in slightly ahead of our $10 million net tariff impact in the first three quarters of fiscal 2026. We continue to expect that we will achieve tariff cost neutrality by the end of the year and margin neutrality in fiscal 2027.

I'd like to thank the entire Columbus McKinnon team for their unwavering commitment to our customers and strong execution in the quarter. The team successfully managed through a complex set of strategic objectives and an evolving market landscape while delivering ahead of our initial expectations for the quarter.

Orders were up 11% to $247 million. The US grew 15%, driven by strength in lifting, automation, and precision conveyance, and EMEA grew 3% despite the continuation of a weaker economic landscape that is causing slower order conversion. Globally, growth was balanced across both short-cycle and project orders, reflecting stabilization of short-cycle demand, traction on our commercial initiatives, and implementation of tariff-related price increases.

Our pipeline of quotation activity remains encouraging, and we continue to see a strong funnel of new business opportunities. We expect US demand to remain healthy, driven by lower interest rates, favorable CapEx deduction rules as part of the new tax legislation and benefits from onshoring, all of which will serve as tailwinds for our business.

As mentioned previously, in EMEA, we expect choppiness to persist given the forecast for a challenging demand environment in the near term. While the pipeline for new business continues to build, order conversion is expected to continue to be slower than typical. We are focusing our efforts on vertical end markets with tailwinds like metal processing, government and defense and heavy equipment as well as end markets where we've been building a leadership position like battery production, e-commerce, food and beverage and aerospace. Our backlog is strong, up 15% versus the prior year to $342 million with an increase across all platforms in both our short-cycle and project businesses as we've continued to deliver on our commercial initiatives and capitalize on US market stabilization.

I'll now turn the call over to Greg to share the details of our third-quarter financial results.

Thank you, David. As David shared, Columbus McKinnon delivered strong results in the third quarter with double-digit growth in sales, orders, backlog and adjusted EPS. We delivered net sales of $258.7 million up 10.5% from the prior year driven by higher volume, pricing and favorable currency translation. We saw particular strength in lifting, linear motion, and automation.

Growth was strongest in North America, driven by stabilization of demand in the US, and we saw a modest organic growth in EMEA against a weaker economic backdrop. Pricing impacts continue to accelerate, and we expect pricing to continue to ramp over the next several quarters as we work through our backlog. Short-cycle sales increased 13% with outperformance in the US benefiting from both pricing and volume growth. Project-related sales increased 8% as we converted backlog to revenue globally.

Gross profit of $89.2 million increased $7.1 million or 8.6% versus the prior year on a GAAP basis, reflecting higher sales volume, price increases and favorable FX rates. We also had lower factory consolidation and start-up costs in the quarter compared to a year ago, which was partially offset by negative tariff-related impacts.

On a GAAP basis, our gross margin was 34.5%, and on an adjusted basis, our gross margin was 35.1%. Adjusted gross margin contracted 170 basis points year over year due to unfavorable product mix and the impact of tariffs. Product mix this quarter was unfavorably impacted by the timing of sales for our higher-margin precision conveyance platform as well as a less favorable product mix in our US lifting business. We also had more rail project shipments globally and less linear motion sales, which negatively affected margins. RSG&A expenses this quarter included $6.3 million of acquisition-related costs for the Kito Crosby transaction as well as our pending divestiture.

Excluding these items, adjusted RSG&A as a percent of sales was unchanged from the prior year, even with the lapping of a favorable incentive compensation accrual release. As a result, we generated operating income of $16.2 million in the quarter on a GAAP basis and adjusted operating income of $24.5 million. Adjusted operating margin was 9.5% in the quarter. This resulted in adjusted EBITDA of $39.8 million in the third quarter with an adjusted EBITDA margin of 15.4%. Please note, the calculation of adjusted EBITDA and margin now includes an add back for stock compensation expense to be more consistent with our credit agreement definition.

GAAP income per diluted share for the quarter was $0.21, up $0.07 or 50% from the prior year. Adjusted earnings per share was $0.62, up $0.06 or 11% year over year due to higher net income resulting from higher sales volume and pricing as well as lower foreign exchange losses in the current year compared to the prior year. Free cash flow in the quarter was $16.5 million, reflecting higher earnings, favorable working capital, increases in customer deposits and lower cash taxes, partially offset by $6.7 million of transaction-related cash payments.

As David previously mentioned, we're pleased to have announced the closing of the Kito Crosby acquisition. Now that we've closed the transaction, we have begun integration activities, including executing against our $70 million net run rate cost synergy target. In connection with the acquisition, we completed our permanent financing to fund the transaction, which included a new $1.65 billion Term Loan B based on three-month SOFR plus 350 basis points, which was funded at 99% of face value. $900 million of senior secured notes with a coupon of 7.125% funded at par, $800 million of perpetual convertible preferred stock, along with a new $500 million revolving credit facility, which significantly increases the company's liquidity.

We are pleased that our financing rates came in below our initial estimate of approximately 8%, accelerating our ability to pay down debt and delever the balance sheet. Additionally, we increased the amount of our Term Loan B and the capital structure which is prepayable without penalty. With significant cash flow generation expected, we have the flexibility to pay down debt ahead of scheduled amortization, which will further reduce interest expense.

Additionally, we intend to use the proceeds of our pending divestiture of our US power chain hoist and chain operations, net of taxes and transaction fees of approximately $160 million to pay down the Term Loan B. We expect that transaction to close later this quarter.

Going forward, the company's primary capital allocation priority will be debt repayment. We expect that our significant combined free cash flow will enable us to reduce our net leverage ratio to below 4 times by the end of fiscal 2028.

Given the recently completed acquisition of Kito Crosby and the uncertainty around the timing of our pending divestiture, we are withdrawing our prior Columbus McKinnon stand-alone guidance for fiscal year 2016. As usual, we will provide guidance for fiscal '27 on our earnings conference call in May 2026 when we report our fiscal year '26 fourth quarter results.

Certain transaction-related expenses, purchase accounting adjustments and early integration costs are expected to be recorded in the fiscal fourth quarter of 2026. The impact of these costs, along with higher interest expense is expected to be dilutive to GAAP earnings per share in the fourth quarter and for the full fiscal year of 2026. We also expect significant transaction and other deal-related costs in the quarter which will negatively impact free cash flow, both of which have been anticipated.

We are enthusiastic about the recently completed acquisition of Kito Crosby and our ability to achieve our stated long-term objectives. Our operational and commercial teams remain focused on business continuity and delivering on our operational and customer service initiatives. In addition, our integration management office as a dedicated team of cross-functional leaders to advance our progress on cost synergy realization and drive revenue synergy upside. While the acquisition closing process has gone on almost a year, we have used our time wisely to advance our integration and synergy plans.

I want to add that we are excited to welcome the Kito Crosby team to the Columbus McKinnon family. And going forward, we are one team with a common shared vision of the future. Operator, we are now ready to take questions.

(Operator Instructions) Matt Summerville, D.A. Davidson.

A couple of questions. First, can you remind us a bit on the seasonality in the Kito Crosby business kind of compare and contrast versus that of the core business? And also talk about the timing in which this $70 million in cost-related synergies is realized, meaning how much is sort of in year one versus year two versus year three? Any kind of help you can give there? And then I have a follow-up.

Sure. Thanks, Matt. So as you know, Columbus McKinnon as a stand-alone business has its strongest quarter in the fiscal fourth quarter, which is the quarter that we're in, ending in March. Kito Crosby year-end is a December year-end, and they also typically have their strongest quarter seasonally in the fourth quarter for them, so our fiscal third quarter.

And then nothing beyond typical trends in the industry that would be driving normal activity in the business, which in our business, as we compete in the same markets, we tend to see a first half that's more or less equivalent to the second half and a bit of a stronger second quarter and a stronger fourth quarter. So I think we expect to see something similar with their business profile. And then from a $70 million of synergies perspective, we expect roughly 20% in year one, and that number going up to 60% realized in year two and then the full 100% of the $70 million realized in year three.

Got it. And then as you kind of think about I would assume the EBITDA cadence for Kito would follow a similar pattern. So if that's -- if I'm mistaken on that, please correct me. But then I was hoping you could do kind of a deeper dive kind of around the horn, if you will, on your major end markets in addition to what you said in your prepared remarks. So a bit of a deeper dive, if you will, there and maybe add a little bit of geographic color as you do it.

Well, Matt, the first part of your question, you would expect that Kito Crosby is going to be in the 22% to 23% EBITDA margin range with the sales level that they have. So nothing unusual from that perspective. Yeah. And then, Mark, I'm sorry, as it relates to markets, we benefit from broad-based exposure to many end markets as does Kito Crosby.

In this past quarter, we're seeing general industrial space strength and investment in automation. We saw a lot of demand in the automation space. We also saw a really nice demand profile for e-commerce orders, and we're seeing those start to come back.

Bright spots also included construction, aerospace and government, heavy machinery and food and beverage. And then some pockets of slower demand included general stocking distributors who managed inventory into the year-end. As well as energy and utilities, although this is impacted by project timing, and we expect that to improve.

As it relates to geographic demand, orders in the US were up 15% and orders in Europe were up 3%, but much of that was FX driven. And so we're -- we saw demand in Europe continue to be slower than anticipated. And as we provided comments in the prepared remarks, we anticipate that, that slower decision-making is going to continue into the coming quarter.

James Kirby, JPMorgan.

Congrats on closing on the acquisition. I guess just on -- I know you aren't giving forward quarter or even next fiscal year guidance here. But just, I guess, based on the original assumptions embedded in the deal when it was announced a year ago, how are both businesses trending? And I hope you can comment on that now that the deal is closed relative to your initial assumptions?

Sure. And what I would say is that we provided in our January 14 press release when we announced the divestiture, a pro forma fiscal year '26 guidance range assuming that we would own Kito Crosby for the full year as well as that we divested the chain and electric chain hoist business at the beginning of the year. So kind of a pure pro forma view, inclusive of $70 million worth of net run rate synergies. And in that set of assumptions, we were running somewhere between $2 billion and roughly $2.1 billion. We had in terms of revenue.

And then we had EBITDA that was in the $440 million to $460 million range in the combined business. Now you'd have to get to a base business without the synergies, you'd want to back off $70 million from that on the assumed benefit over the three years. And then we could add back in the 20% for year one if you were thinking about the business from a go-forward basis. And that would be the TTM performance from March 31 backwards from a range perspective. I hope that helps, James.

Got you. It does. I was speaking more in terms in the macro background. I mean -- and I'll weave that into my second question here, but obviously, a really strong start to the calendar year.

ISM data was strong. Short-cycle is up 13% last quarter or the quarter you just reported. Is that -- and maybe just following on Matt's question, is that sustainable? Or do you think that is somewhat of a recovery from a slowdown last year? And maybe just more color into the sectors driving that order pipeline.

Yeah. So short-cycle business is robust. We did see a 10% year-over-year increase in short-cycle orders last quarter. And seasonally, it's sequentially down typically versus the second quarter as stocking distributors take some inventory out of the channel. But as we head into the first quarter of this year, we do see orders up slightly over prior year in the period-to-date through January.

And so continue to anticipate that the short-cycle demand remains robust, notably in the United States. And we feel good about the demand funnel. Our funnel is quite healthy, and that is a reference to global activity and inclusive of EMEA, where decisions are a little bit slower given the overall view of large economies there, notably the IFO index for Germany as a leading indicator that we're looking at. But as you said, we see good trends in the US, and we're encouraged by that demand profile and would see that continuing for our business into the -- at least into the first half of this year.

And James, just a follow-up on -- circle back on the beginning part of your question. So we did preannounce ranges for Kito Crosby's 12/31 results. A year ago when we announced the deal, we were pointing to about $1.1 billion in revenue and $263 million of adjusted EBITDA. And with the 8-K we put out on January 14, we ranged their sales at between [$1.140 million] and [$1.150 million], so up probably 3% to 4% and adjusted EBITDA between $273 million and $283 million, so up nicely.

Steve Ferazani, Sidoti.

Just wanted to touch on the margins and tariff offsets a little bit. I'm trying to figure out the margin squeeze year-over-year this quarter. How much of that is from tariffs and how much of that is from mix? I think you pointed to some more rail -- lower-margin rail deliveries this quarter. And then what levers you need to pull that remain to get you to tariff margin neutrality in fiscal '27, your confidence to get there?

Yeah. Thanks, Steve. And I would say just at a high level, the biggest impact was backed was mix, followed by tariffs. And really, we had a mix issue as it related to more unit sales in lifting equipment versus parts sales. And that obviously bodes well for future aftermarket opportunities with bigger installed base, but that consumed a bunch of our capacity in the quarter and reduced the opportunity to produce and sell parts.

We also had a lower revenue number for precision conveyance product. And that was just based on the timing and delivery. Orders in that business in the US are up considerably. And we have a significant backlog still related to the PowerCo orders that we received previously from montratec.

But based on phasing delivery in the quarter was lower on a relative basis, and therefore, those two factors really led to a reduction in margins. As you know, rail shipments do have an impact on overall margin and the mix of rail versus actuation or screw jack sales into the OEM space or the machine builders market is a mix challenge for us that we're navigating as the markets in Europe are still growing or picking back up in the wake of a slowdown for machine building activity.

And then, the confidence level -- yeah, the confidence level and ability to get to margin neutrality. Is it in terms of tariff?

Yeah, absolutely. We still anticipate that as we exit this year, we're at margin neutrality relative to the tariff impacts, and we are -- that is cost neutrality, I should say, and then margin neutrality next year as we execute on the initiatives that we have in store.

Okay. Given the prolonged nature to get the Kito Crosby deal closed, I know you've been working on integration ahead of our planning your ability to capture that your confidence level to capture those 20% of the $70 million of synergies in year one. Any chance you're going to beat that? And is that going to be bad? Are you thinking that's back half weighted?

Yeah. We're working our tails off to deliver on that and to hopefully overdeliver that, certainly what we're striving to be able to do but our commitment is to get to the 20% in the year. And that's the way that we're targeting those savings and communicating about those savings.

But as you know, we have a full and robust list of opportunities. We've been working since October with a full-time staffed integration management office, taking advantage of the time between signing and close to get ready for day one and to position ourselves with actions that allow us to certainly meet and hopefully exceed those targets, and that's what we're striving to be able to do. And I would anticipate in the natural course of those savings building that they would be naturally back-end loaded.

Jon Tanwanteng, CJS Securities.

Congrats on closing the deal. My first one is, did you benefit or were you impacted by any pull-ins or push-outs in the quarter? And the reason I'm asking is just because that's been an item in the last several quarters. And I'm wondering if that was a factor in this one, too.

Yeah, Jon, nothing that we would state as material. Certainly last quarter, we did reference that. But in this quarter, no, nothing that was too material.

Okay. Great. And then second, could you talk about how much of the strength in the quarter and the orders that you're seeing is from the US chain hoist business just because that's going to be divested in the near future. And I'm just wondering what that looks like if that may not have been there.

Yeah. There was nothing material in the chain hoist orders or in the chain production orders that was -- that would have kind of in any outsized way, influenced the order number out of what would be typical. And so when we think about the performance in the quarter on a relative basis, I would say that orders were more or less in line for that piece of the business relative to prior periods. And so I don't think there's anything to specifically call out as it relates to demand that would go away and that business specifically being a big influencer of the order rate that we had in the third quarter.

Okay. Great. That's helpful. If I could squeeze one last one in there. I mean you did a bit better in the quarter. It looks like Kito is doing well as well, but you did pull the guidance, I understand due to timing.

But it seems like the underlying trends are stronger compared to when you last guided. Is that fair to say?

Yeah. I mean I think the business in the US is robust, and we feel confident about the performance in that region. I think in Europe, we continue to see some softness as it relates to demand and timing of orders related to the overall macros.

And on an overall execution basis within our business, we have a strong backlog. It's up materially year over year. And we demonstrated in the last couple of quarters our ability to execute on that backlog.

The challenge has been a bit of mix and how that mix is translating into revenue. And I would expect that to continue as we execute through this fourth quarter. But in general, trends are robust and the combined businesses will be, I think, delivering into markets that are going to receive the combination well. and we're going to be targeting the execution of synergies.

And so I think this is a terrific opportunity to bring these businesses together. And over the course of this year and the coming two years, really deliver a lot of value for our shareholders.

Thank you. That concludes the Q&A section of the earnings call. I will now turn the call back over to Mr. Wilson for closing comments. Sir, please go ahead.

Thank you, operator. Before we close, I want to take a moment to reiterate the Columbus McKinnon investment thesis having now closed the Kito Crosby acquisition. We believe this acquisition will be transformative, and I'm excited about our collective future. On a combined basis, we will be doubling our revenue base as we become a scaled global provider of Intelligent Motion solutions for material handling. This will better position us to deliver solutions for our customers, which meet both their routine needs and their most complex intralogistics challenges.

We will also have improved leverage from scale across our global geographies and product portfolios. Geographically, both companies have strong positions that we will leverage and grow in North America. Additionally, we will benefit from our complementary positions in EMEA and Asia Pacific, and we have significant room to grow together in Latin America.

Our combined product portfolio will allow us to assemble a holistic offering for our customers across all geographies and simplify the customer experience over time. We will also focus on delivering a one-stop experience for our customers, finding their buying and servicing processes. And our greater scale and combined free cash flow will enable investment in digital customer experiences that ensure we are at the forefront of the industry in terms of ease of doing business.

Our operations will benefit from leverage across our combined material spend and the combined benefits of the Columbus McKinnon Business System, including 80/20 and Kito's expertise in lean manufacturing and process tools. In addition, we have plans to improve the financial profile of the company, while delivering the $70 million of identified net annualized cost synergies that we expect to achieve. Finally, our substantial cash flow generation potential is expected to rapidly delever the balance sheet to less than 4 times net leverage by the end of our fiscal year '28.

I firmly believe our best days are ahead of us. While I acknowledge the work that lies ahead, I am thrilled to be in this position. We have the right plan and team in place to ramp our integration efforts.

Our newly combined teams are already partnering to enable synergized commercial initiatives and customer success. In tandem, our integration management office is laser-focused on delivering our cost synergy objectives and integrating these two great companies. I believe this combination will drive meaningful value for all of our stakeholders and usher in the next phase of growth for Columbus McKinnon.

Thank you for your time and continued interest. As always, please reach out to Kristy with any questions.

This concludes today's conference call. You may now disconnect.