PARK OHIO HOLDINGS CORP Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Park-Ohio is proud of 2024 results, including improved gross margins, solid cash flow, and better leverage metrics. The company has reshaped its business portfolio, exiting non-strategic businesses and focusing on complementary industrial businesses with competitive moats.
• In 2024, consolidated net sales were ~$1.7 billion, consistent with 2023. GAAP earnings per share from continuing operations increased 18% to $3.19, and adjusted earnings per share rose 17% to $3.59. Gross margins improved 60 basis points to 17% of net sales.
• Operational improvements are ongoing, such as changes in plants to enhance performance, particularly in the forging business. Corporate expenses increased in 2024 due to higher employee-related costs.

Segment Performance

• Supply Technologies: Full-year net sales were a record $779 million, up 2% from $766 million in 2023. Operating income reached an all-time high of $75 million in 2024, up 27% from $59 million in 2023, with operating margins at 9.7%. Fourth quarter net sales were $182 million, up 2% Y/Y, and adjusted operating income was $16 million, up 14% from the prior quarter.
• Assembly Components: Full-year sales were $399 million, down 7% from $428 million in 2023, due to lower unit sales and pricing. Adjusted operating income was $26.5 million in 2024, down from $34.9 million in 2023. Fourth quarter net sales were $90 million, down 7% Y/Y, and adjusted operating income was $4.5 million, down from $6.5 million in the prior year.
• Engineered Products: Full-year net sales were a record $482 million, up 3% from $469 million in 2023. New equipment bookings were $164 million, and backlog was $145 million. Adjusted operating income was $21.3 million in 2024, down from $24 million in 2023. Fourth quarter net sales were $117 million, slightly up from $115 million in 2023, and adjusted operating income was $5 million, up from $3.8 million.

Guidance

• Expect revenue growth driven by stable demand in most end markets. Anticipate year-over-year improvement in adjusted operating income, adjusted net income, EBITDA as defined, and free cash flow.
• Fully diluted shares outstanding are expected to approximate 14.7 million shares versus 13.2 million in 2024.
• Effective tax rate expected to be 21%-23% in 2025, compared to 11% in 2024.
• Tariffs on imported goods may increase costs for certain raw materials and components, but U.S. manufacturing plants may benefit from higher production and localized sourcing.

Risks

• Tariffs on imported goods could impact certain segments, though efforts are underway to mitigate via supply chain localization and customer cost pass-through.
• Volatility in end markets, such as power sports, industrial and agricultural equipment, and lawn and garden, can affect sales.
• Operational challenges in turning around underperforming businesses, particularly in the Engineered Products segment, pose risks to margin improvement.

Question and Answer

• Q: Should we expect 2025 to be a normal year, or do you think tariffs or anything else might throw that seasonality off? A: Matt Crawford noted most business won't be meaningfully impacted by tariffs, but chaos could affect demand. Pat Fogarty mentioned working with supply chains and customers to mitigate tariff impact while noting aerospace and defense remain strong.
• Q: Any questions specifically on fasteners and maybe some exposure there particularly as it relates to China? A: Pat Fogarty stated Supply Technologies has small exposure to China, having localized supply from there to other countries and the US. Exposure to Taiwan is managed to minimize cost increases.
• Q: Where did we end the year of 2024 and why the major increase in shares? A: Pat Fogarty explained 1 million shares were sold through an ATM program, and there's a small increase from restricted stock programs. Matt Crawford noted the move to deleveraging and position for refinancing.
• Q: Can you just walk us through the specific steps you are taking to drive that sustainable margin expansion? A: Pat Fogarty mentioned implementing value drivers like vertical integration, automation, and raw material sourcing changes across businesses. Matt Crawford highlighted investment in business processes at Supply Technologies to improve efficiency and margins.