COLUMBUS MCKINNON CORP Q2 2026 earnings call

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, Kristine, and 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 U.S. 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 U.S. and EMEA, our two largest regions. Adjusted EPS improved $0.12 sequentially to $0.62 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 tariff 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 tariff 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 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 2026.

We still expect to achieve margin neutrality in fiscal 2027. 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 conveyor systems and light rail workstations businesses. While our pipeline of quotation activity remains healthy, the weaker economic landscape in EMEA and APAC is resulting in slower conversion for project orders. In the U.S. 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 U.S. 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, 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 planning. 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 benefited from higher U.S. 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 U.S. 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 RSG&A 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 Kito Crosby transaction and $1.1 million in business realignment costs.

Excluding these items, adjusted RSG&A was up by $5.8 million to $59.2 million on higher sales volume, an 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 RSG&A increased 60 basis points to 22.7%. However, normalizing for the change in incentive compensation costs, adjusted RSG&A 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%. GAAP income per diluted share for the quarter was $0.16, and adjusted earnings per share was $0.62.

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 third quarter is our seasonal low for both sales and margins given fewer work days 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 2026 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 deleveraging. 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.