Park-Ohio Holdings Corp. Price & Performance (PKOH)

The businesses we are focused on demonstrate varying strength including strong global brand recognition, excellent economies of scale and data management, intellectually protected products, and a good balance of aftermarket exposure. In addition, we have created a less asset intensive model which should lower our capital expense through the business cycle and free up opportunities to invest in those items which will lower our cost to serve and increase our overall competitiveness and margin profile.

Additionally, these investments should be the bedrock of a model focused on organic growth complemented by some acquisitions through the business cycle. Thank you to all of our Park Ohio associates globally Our team has never been stronger. Thank you. Now I'll turn it over to Pat to cover to cover the numbers.

Thanks, Matt, and good morning. Overall, we are pleased with our 20 including gross margins, operating income margins, earnings per share, EBITDA as defined and net debt leverage.

Also our supply chain management proprietary fast manufacturing industrial equipment businesses achieved all time high in terms of sales and profitability. Before I comment on our guidance for 2025, I'll review our full year and fourth quarter results in detail. Consolidated net sales in 2024 were consistent with 2023 record revenues. Two out of our three business segments experienced year over year sales growth which was driven by several end markets and a broad range of customers. Our Supply Chain Management business achieved record sales during the year despite demand volatility in several end markets. Year over year growth occurred primarily in aerospace and defense, heavy duty truck, consumer electronics and electrical distribution markets, offset by weaker demand from power sports industrial and agricultural equipment and lawn and garden markets. In our proprietary faster manufacturing business, full year sales were at rec [indiscernible] contributed to the greater than 10% growth year over year in this business.

The sales growth in our Engineered Products segment was in line with our new equipment bookings throughout the year. The booking trends continue to be robust throughout the year in both North America and Europe, and in all major induction heating and melting brands.

In our Assembly Components segment, full year sales declined 7% year over year, which was a result of lower unit volumes on auto platform currently in production and end of life programs and lower pricing on certain fuel products. Replacement sales on the programs that ended during 2024 launched in the second half of the year and we're not at full volume production rates. This also affects four sales in this segment.

Our GAAP earnings per share from continuing operations increased 18% to $3.19 per diluted share compared to $2.72 last year, Adjusted earnings per share, which excludes one time non recurring items, improved to $3.59 a share compared to $3.07 per share in 2023 an increase of 17% year over year.

Full year gross margins in 2024 improved 60 basis points to 17% of net sales The gross margin improvement was most evident in our Supply Technologies segment resulting from lower product costs, favorable sales mix, and improved absorption in many locations throughout North America and Europe. Gross margin improvement continues to be a key initiative and we expect continued improvement in the current year. SG and A expenses were higher in 2024 primarily to the higher employee related costs and general inflationary increases.

As a percentage of net sales, SG and A was 11.3% of sales compared to 10.9% of sales in 2023.

Our adjusted operating income was $94,000,000 compared to $90,000,000 a year ago, an increase of 4% year over year. Record operating profit margins in our Supply Technologies segment and in our Industrial Equipment business accounted for the increase year over year. Interest expense was $47,000,000 compared $45,000,000 in 2023, [indiscernible] was primarily due to higher interest rates. Our full year income tax expense was $4,900,000 on pretax income of $44,400,000 representing an effective income tax rate of 11%. Our effective global tax rate benefited from the recognition of research and development tax [indiscernible] And the reversal of certain tax valuation allowances during the year.

We expect a more normalized tax rate in 2025 ranging from 21% to 23%.

Our EBITDA as defined was $152,000,000 in 2024 and thirteen percent compared to $134,000,000 in 2023. Operating cash flow generated during the year was $35,000,000 and free cash flow was $15,000,000 Additionally, we sold approximately 1,000,000 shares of common stock for $30,000,000 and used the proceeds to pay down debt. As a result of our improved EBITDA and lower debt levels at year end, our net debt leverage improved to 3.8 times.

Moving now to our fourth quarter results, net sales from continuing operations of $388,000,000 were consistent with twenty twenty three fourth quarter revenues.

Quarterly revenues in our Supply Technologies and Engineered Products segments increased 2% Revenues in our Assembly Components segment declined in the fourth quarter due to customer shutdown schedules during the month of December, which affected several of our plants in this segment.

GAAP earnings per share in the quarter were $41 per diluted share which is affected by the impact of one time non recurring items totaling $5,000,000 relating to facility exit costs litigation expenses relating to a 2016 dispute in our Assembly Components segment and gains on sale of assets. Our adjusted earnings per share of $0.67 in the quarter compared to $0.54 in the quarter last year, an increase of 24%.

In the quarter, adjusted operating income totaled $19,400,000 compared to $17,700,000 the twenty twenty three quarter and margins improved 45 basis points compared to 2023.

We generated significant operating cash flows of $26,000,000 and free cash flow of $29,000,000 EBITDA as defined increased 27% to $37,000,000 in the quarter. Turning now to our segment results.

In Supply Technologies, net sales the full year, we're a record $779,000,000 up 2% compared to $7.77 $66,000,000 in 2023. The increase was driven by higher customer demand across certain key end markets and our supply chain business with the biggest increases in aerospace and defense, heavy duty truck, consumer electronics, and electrical distribution, which was offset by softer year over year demand in the power sports, industrial and agricultural equipment and lawn and garden end markets.

During the year, we continue to see strong demand from commercial and military aerospace Sales in this segment were also favorably impacted by increased demand for our proprietary fastener products as sales in that part of the segment were up 11% year over year. Operating income in this segment achieved an all time high and totaled $75,000,000 in 2024, up 27% compared to $59,000,000 in the prior year. And operating margins were 200 basis points higher at 9.7%. These increases were driven by the higher sales levels, favorable mix of higher margin products and the impact of profit improvement initiatives. In the fourth quarter, net sales were up 2% to $182,000,000 compared to $176,000,000 in the fourth quarter of twenty twenty three, Adjusted operating income totaled $16,000,000 compared to $14,000,000 in [indiscernible] quarter, an increase of 14%.

The fourth quarter results were a strong end to an outstanding year's performance by this segment of our business. In our Assembly Components segment, sales were $399,000,000 or for the year, down 7% compared $428,000,000 in 2023, resulting from lower unit sales caused by lower OEM production, lower pricing on certain programs and end of life programs. Adjusted operating income was $26,500,000 in 2024, compared to $34,900,000 in 2023. In the fourth quarter, net sales of $90,000,000 were down 7% compared $97,000,000 in the fourth quarter of last year and adjusted operating income totaled $4,500,000 compared to $6,500,000 in the fourth quarter of twenty twenty three. Our fourth quarter sales levels were affected by OEM plant shutdown schedules, which exceeded holiday scheduling in the prior year. In our Engineered Products segment, full year net sales were a record $482,000,000 up 3% compared to $469,000,000 in 2023, driven by strong customer demand in our industrial equipment business. New equipment bookings for the full year were $164,000,000 and new equipment backlog as of December 31 totaled $145,000,000 Record revenues in this business grew 6% with significant growth in sales of aftermarket parts and services which grew 12% year over year.

In our Forged and Machine Products business, full year sales decreased 4% driven by lower rail forging sales, which more than offset strong demand for aerospace forgings in our Canton, Ohio facility.

We continue to quote new projects in support of the defense industry including aerospace forging products and new equipment builds. Excluding special charges, our adjusted point $3,000,000 compared to $24,000,000 a year ago in this segment. The lower operating income levels are driven by a year over year decline in the production of rail forging products, which significantly affected margins in this segment.

We have implemented operational improvements in our plant in Arkansas and expect the benefits to be realized throughout 2025. In the fourth quarter, net sales of $117,000,000 increased slightly over sales of $115,000,000 in the twenty twenty three quarter and adjusted operating income was $5,000,000 in the quarter, compared to $3,800,000 Despite the improvement in adjusted operating income, we continue to make operational changes to certain plants to improve future performance notably in our forging business. And finally, corporate expenses were $29,000,000 in 2024, compared to $28,000,000 in 2023, with the increase driven primarily by higher employee related costs. Now I'll make a few comments relating to our guidance for 2025. As indicated in our press release, we expect revenue growth to be in the range of 2% to 4% year over year. Driven by stable demand in most end markets compared to 2024 demand levels. We also expect year over year improvement in adjusted operating income adjusted net income, EBITDA is defined in free cash flow.

In addition, fully diluted shares outstanding will approximate four In addition, fully diluted shares outstanding will approximate 14,700,000.0 shares versus 13,200,000.0 shares in 2020 we expect an effective tax rate of 21% to 23% compared to 11% in 2024. As a result of recent actions with respect to tariffs, on goods manufactured abroad, costs for certain goods which we import into The United States, including certain raw materials and components, are expected to increase. We are working with our supply chains and customers to mitigate the impact of such tariffs. Conversely, our United States manufacturing plants may realize a benefit from tariffs as a result of higher production and localized sourcing back into The U. S. And I'll turn the call back over to Matt.

Great. Thank you, Pat.

I will now open the floor for questions.

Thank you. And I'll be conducting a question and answer session. Our first question is coming from Dave Storms from Stonate. Your line is now live. Good morning, Dave.

Just wanted to start with some of the guidance and see kind of what your expectations are for Cadence. Should we expect 2025 kind of a normal year or do you think tariffs or anything else might throw that seasonality off? Let me say, Dave, this is Matt. Before Pat answers that, let me comment on tariffs because it took to the first question to talk about them. So let's just kind of jump in.

I think [indiscernible] in his prepared comments is really important. Most of our business, a majority of our business will not be impacted meaningfully or at all by tariffs.

Also, our balance of business allows us to have exposure particularly in the forging group and in the equipment group which could benefit from these things.

In the Ford Group, we are largely sourced domestically. For steel in The U. S. So that would be tariff free. In the equipment business, we would benefit steel business and in other related businesses and in American manufacturing generally. As you know, we've seen huge backlogs in that business as that investment has been happening over a series of years in multiple industries. So we got a lot of bites at the apple in our in our portfolio to be successful here. And the majority of our about 65% to 70% of our business is in North America. Most of it will not be impacted [indiscernible] But we do have some areas. Pat mentioned it and Yes. Dave, when you think about our business in the Supply Technologies segment where we source product all around the world, we do have tariffs that we expect to impact of that business as it stands today. We're working with our supply chains to localize some of that supply but also working with our customers to be able to pass that cost along to them. So it's going to take time to work a lot of that out. But clearly, our belief is that through our ability to work with our supply chains and work with our customers, will mitigate a large portion of these tariffs as they impact twenty twenty five.

In our auto segment, the same holds true there. As you know, we have significant production plants in Mexico that bring product into The States, but also ship product in the country. And so depending on how that plays out and how tariffs impact [indiscernible] we will work with our customers to absorb that cost. And as it stands today, every day is a new day and we're hearing new news by the hour, but But right now, we're it's an all out effort to work with our Dave, I would add one other thing. I think as Pat mentioned, the context of our our business plan, this is something we will manage. And we have opportunity as well as I mentioned. Having said that, this chaos does cause us our customers, the whole supply chain to be concerned about demand. I mean, this chaos clearly, we haven't seen it yet. But I do get concerned that whether there's inflation or just chaos, could affect overall demand in 2025 in multiple markets. But we're certainly not seeing that now. Understood. That's great color. Thank you.

As we're looking into 2025, aerospace and defense has been a real standout for you guys.

Recently, you just mentioned the tailwind from the backlogs. Are there any other end markets to highlight or keep an eye on potential standouts into 2025?

I think you hit on on the one end market that we continue to see growth in. When we look into our capital equipment business, Dave.

We continue to see strong backlogs We continue to see booking levels and quoting levels at a high level So that's positive for 2025. Within Supply Technologies, we continue to see because of the diversification of that particular business, many end markets are expecting to have increased demand of heavy duty truck being one of them. But it's a range of 2% to 4% isn't isn't largely due to to aerospace and defense. There are other end markets that we expect growth in. David, I would also add from a margin perspective and we spent a lot of time talking about increasing margins, The big opportunity for 2025 is in our Engineered Products Group, If you look historically and I know you have, that business is still substantially underperforming despite the strong backlogs.

So as we continue, I think, to be effective our execution, I think that's the big opportunity at the margin line.

That actually ties in real nicely to next question here. Just on the holiday margins, supply tech has been much buoying consolidated margins. I know your business is set up to take advantage of that diversification. This does 2024 look like baseline for margins for you with potential sweetener from Engineered Products or is there anything else we should maybe keep in mind there?

Yes.

I mean, I would say in the aggregate, the opportunity is or the consolidated results, the opportunity is in the Engineered Products Group. We have been so impressed by the leadership of Supply Technologies Certainly not suggesting that story is over, but those guys have executed at a very high level both on the supply chain side and the specialty fastener manufacturing business. So they've done a great job. And they will continue to, but our opportunity is to get the Engineered Products Group back to where it's been historically.

That's perfect.

And then they couldn't agree more. I think as we say here, money is made in buying and supply tech had some real success in terms of their product costs during the year, which helped our margins. But the opportunity not only is in our engineered products to improve margins, but also in in the assembly components area where we continue to implement new value drivers to improve our margins.

And Dave, this will give me a chance to highlight what I said in my opening comments. As we've exited some of the forge business and general aluminum, which were high capital cost businesses will reallocate that into places like Supply Technologies where we see opportunities not just to work a little harder, but to be a little smarter. So you'll see us investing in technology tools, just to be a little smarter, lower our cost to serve and create a sustainable competitive advantage. So I think that the story on margin in that group is going to be strategic as well as good execution on buying and so forth. That's great Thank you. One more for me if I could. I know You guys had a fairly active 2024 from an M and A side with the divest curious as to what you're seeing in the M and A market with just the general economic How long?

Yes. The volume of of deals that we see, Dave, I would say is good. And has always been pretty good, but at a pretty [indiscernible] We continue to look for strategic type acquisitions that could complement our most profitable businesses. Whether that be in supply technologies, or whether that be in our aftermarket parts and services business on the equipment side.

So So I think we're very careful with with where we are going to bolt on to to which companies and the activity is pretty good right now.

Thanks, Dave. Thank you. Thank you. Next question is coming from Brian Sponheimer from Gabelli Flund. Your line is now live.

Hey, Matt. Hey, Pat. Thank you very much for for getting me on here. We were talking a little bit this morning about the release and you guys did a great job on the tariff side kind of explaining what some opportunities are. Any questions specifically on fasteners and maybe some exposure there particularly as it relates to China. That you might need to work on potentially down the road here? Any comments there? [indiscernible] Supply Technologies does import product from China, but it is a small amount A few years ago when tariffs were first implemented, we localized supply and moved supply out of China to other countries and back into The U. S. So our exposure there is pretty small. The other products that we may source from Asia would come out of primarily Taiwan. And that's where we're obviously working with our customers and our suppliers, including our Taiwanese suppliers, to keep those costs increases to a minimum. [indiscernible] Okay, terrific. Thanks for the clarification. And with With this current environment.

Thank you. Next question is coming from Jamie Willam from Willam Management. Your line no live. Hi, Phil, a few different areas. One, you mentioned that the shares outstanding you expect for next year to be 14.7% versus 13.2%. Where did we end the year? Of 2024 and why the major increase in shares?

Yes. Jamie, as I mentioned in the script, we sold 1,000,000 shares through an ATM program. So that took the shares to north of 14.2. It's a weighted average calculation, the fully dilution of the shares. So for next year, we're expecting it to be 14.7.

The other increase is a small amount of shares that typically get to distributed as part of our restricted stock program within the employee base. Okay. So you're not expecting to sell any additional shares?

Within that forecast? Not in this forecast.

Okay.

Yes. Jamie, this is Matt. That's the first time we've issued shares Again, we're just trying to show our commitment to deleveraging and positioning ourselves for a refinancing of the bonds. Give us a little flexibility. So we wouldn't take that off the table permanently. But to be clear, it is it's an arrow that we want in our quiver.

And I would kind of Since you brought it up, I would definitely want to remind everyone that of those million shares, our family not only participated, but led that round with about $5,000,000 of investment at $30 So we're very committed Got you. In Supply Technologies, you mentioned that proprietary products were up 11%. I assume proprietary products have gross margins well above your corporate average. But what are the types of products we are supplying in proprietary products? And what is the outlook for the future on that? Yes. Jamie, those proprietary products are included in our fast 10 ks, you'll see what historic revenues have been But the opportunity there is we have several products that are used in in attached to lightweight materials, which as you know on the automotive front That is a big initiative to increase or decrease weight of the vehicle by using lightweight metals. Our products attach to those products such as battery cradles and and different parts of the frame of the car.

So a great product has been growing at north of 10% for the last five years.

So growing all around the world. We opened up an operation in Germany, We acquired in 2019 a business in Asia.

So the product has gained wide acceptance amongst OEMs throughout the world. So we expect that to continue. Okay. So the growth rate in the past could be achieved in the future as well?

We fully expect Yes.

I mean, Jamie, as they convert also in aerospace, to different materials, lightweight, other kinds of things you can't weld to, composites, this kind of technology, which is self piercing and adheres after insertion is important. These kind of unique designs are to access areas, not just in auto, although certainly auto has led in the usage of this product. It's a pretty exciting place to be.

On the acquisition front, are you targeting one division more over the other? And what type of EBITDA multiples are you looking to pay?

I'll let Pat handle the EBITDA one. Again, I think that Our capital allocation model right now is extremely focused on what I call our best products and services. Now what we have left in the portfolio are our best and services. So we would be open to acquiring something strategic [indiscernible] typically smaller that opens one of our current management teams and businesses perhaps into an adjacent market. An adjacent customer, an adjacent product line, whatever it may be. So EMA last year is a great example where we found something that was an induction heating business solid customer, solid backlog, in an important market, Germany, which everyone was down on. But remember, German customers put equipment all around the world.

So that's been a very good small acquisition for us.

I think so again, any of our business, I think we'd be open to that kind of one plus one equals three acquisition.

Or bolt on as we call it Having said that, Pat mentioned earlier, I mean, certainly Supply Technologies bringing more in our suite of services and products to our customers. Very important, particularly in these chaotic supply chain times. I would also say on the induction heating side, the aftermarket piece which again is above average margins, These are great opportunities for us and probably lead to back, but again, in the business where remaining, we actually did a nice acquisition in manufacturing business we talked about a few minutes ago, two years ago. So So where we are in our portfolio, these businesses all have opportunities for those kinds of both But of course, we're going to put the most accretive the front of the line.

And last a bit of commentary. I mean, when you look at your businesses, really tightly controlled and the outlook for sales and margins is kind of yet. You have no visibility or relatively little on Wall Street. No one knows what a Park Ohio really is. And it may be time you're doing such a good job of managing the businesses It may be a great time to introduce reintroduce the company to Wall Street, so they know what a park Ohio is or most people have a name for the company that kind of reflects what what their businesses are, not where they're located and where they put their car. And I would hope in the future you would think about that and just so more people in the world can know what you're doing and how well you're doing Jamie, your We do think about what you said We're very proud of Park Ohio heritage and stems back 01/1930, one hundred and forty years from part drop forged in Ohio crankshaft, which were incredibly important names historically. In the manufacturing business globally, particularly nationally for defense and shipbuilding and rails and so forth. So So we're sort of confident in that history, but we think it says a lot about us, but it's not lost on us that most people don't know that history.

I will say again in terms of really thinking about and any ideas you have off line would obviously be helpful. We do think that we have repositioned this business both in terms of how we think about our growth opportunities and our growth strategy and also the businesses that we're in and why we like them. So this business was largely built by acquisition. We will still do our share. But I think our strategy is much tighter. And so perhaps your idea is welcome and timely.

Done a wonderful job of running these businesses and look forward to the future. Thanks. Thanks, Jamie.

Thank you. Next question is coming from Steve Barger from KeyBanc Capital Markets. Your line is now live.

It's actually Christian Dylong for Steve Targur. Thank you guys for taking the questions.

Good morning. Thank you.

So just in the press release commentary, you said you expect year over year improvement in operating income you just walk us through the specific steps you were taking to drive that sustainable margin expansion? And I heard your previous comments on engineered, but does SupplyTech still have some juice to squeeze along with assembly?

Yes. I think and Matt addressed the supply tech side of the business. But if you look at the trends that we've we've established in our operating income, we continue to implement value drivers at each of the business, whether that's focused on vertically integrating rubber mixing, for example, or automation on the plant floor or initiatives around resourcing raw materials from different suppliers to reduce our costs. So each business has a number of value drivers that they implement each year And based on those that we've established in our business plans for 2025, we'll continue to drive operating margins. And that's across the board. Matt mentioned [indiscernible] We've had some challenges in our forged and machined products business that we believe have been solved. Which will add to the improvement in the operating income margins.

Yes, I don't want to I guess we're not trying to suggest that we don't think there's opportunity at we just want to say they've operated at a very high level, executed a high level. Now I think we're on a journey of some investment to improve the business processes. So we could be better, faster, smarter and that will up in the margin, but it won't show up quarter over quarter. It will be a year, if you will, or one point five or two years. So I mean, we're in the middle of that process. And again, I said some capital freed up.

When we let go of some of the forging and casting assets and where it's going to go improving the business process at places like supply tech.

Great. That's helpful. I guess that kind of flows into my next question. Just as we got into the middle of twenty twenty four, you kind of tempered your sales outlook a couple of times. How much of that was market driven versus maybe some deliberate plan to walk away from less profitable business? Then for your 2025 outlook, do you think this is a conservative approach or realistic just given the mixed messages in the market right now?

That did happen.

That did happen. And we said on the third quarter call, we expect it to grow in the fourth quarter. So a little egg on our face there. I don't know I would characterize that as walking away from business. I do think for what it's worth at the margin, we almost did grow. The end of the year was kind of wonky in the industrial sector with the holidays and plant shutdowns.

Auto is a lower and lower percent of our overall mix, but really the chaos at Stellantis I think hurt us a bit relative to our forecast. So but I wouldn't describe any of that as walking away from business. We like our product portfolio right now of [indiscernible] Yes.

I would say Chris, in the normal course of a year, we're always challenging low margin business. So that occurs throughout the year, but nothing significant occurred in our supply tech and our engineered products, you grew at exactly where we thought they were grow at the beginning of the year. Where we saw the decline in sales was primarily in the Assembly Components segment. And that was a result of OEM production schedules and lower volumes than we originally expected. And that clearly, as Matt mentioned, affected the fourth quarter as holiday schedules and Stellantis shutdown schedules as they reposition did affect our sales.

That understood. Just last one from me. Maybe I might have missed this, but what is making the fastener business so strong? Can you just remind us, is there an end market mix or is it more of a mix between OEM versus aftermarket? And then out of those buckets, where do you see the most strength? In 2025? [indiscernible] supply technologies, which represents both the faster manufacturing and the supply chain business.

Is really diverse. So the mix, I think, under the hood, so to speak, of what's up and what's down It's a difficult business to really predict at this point. Now we're really diverse enough, we can get a good sense of where we'll end up a little bit hard sometimes to figure out what's going to happen by market. There's a lot of volatility. I mean, we were very fortunate, I think, position ourselves over the last four or five years strongly in aerospace and defense. To some extent, that saved our bacon a little bit last year. You're definitely seeing some consumer facing things in ag and some other areas that are extremely weak. So, absolutely, I think there's a lot going on. But I would just say that in the aggregate, our business increasingly beats to the drum of what you see across sort of industrial America. So I think because of that are really global industrial. When you have as varied a customer list as furniture to semiconductor tools to trucks to snowmobiles, you're bound to track I think In general, in aggregate, sort of what's going on in the economy generally?

Great. Thank you, guys.

Thank you. Thank you.

We've reached the end of our question and answer session. I turn the floor back over for any further or closing comments.

Great. Well, thank you for your great questions today. We are hard at work here. Again, I want to to end with where I ended my initial comments. Want to thank all of the Far Cloud associates and reiterate our team has never been stronger. Thank you to all of you. Thank you. That does conclude today's teleconference. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.