• Net Sales: $234.1 million, down 8% from the prior year.
• Adjusted EPS: $0.56, including an $0.08 impact from unfavorable foreign exchange movements.
• Gross Margin: 35.1% on a GAAP basis; 36.8% on an adjusted basis.
• Adjusted Operating Income: $25.6 million with an adjusted operating margin of 10.9%.
• Adjusted EBITDA: $37.8 million with an adjusted EBITDA margin of 16.1%.
• Free Cash Flow: $6.2 million, a decrease of $16.9 million versus the prior year.
• Net Leverage Ratio: 3 times on a financial covenant basis.
• CapEx Guidance: $18 million to $22 million for the full fiscal year.

• Warning! GuruFocus has detected 2 Warning Sign with CMCO.

Release Date: February 10, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Columbus McKinnon Corp (NASDAQ:CMCO) announced a transformational acquisition of Kito Crosby, expected to enhance scale and market position.
• The acquisition is projected to deliver $70 million in net cost synergies by the end of year three.
• The combined entity is expected to generate over $200 million in free cash flow annually, facilitating significant debt reduction.
• The acquisition is anticipated to be accretive to adjusted earnings per share in the first year on a pro forma basis.
• The combination is expected to result in a top-tier financial profile with a pro forma adjusted EBITDA margin of 23%.

Negative Points

• Columbus McKinnon Corp (NASDAQ:CMCO) reported an 8% decrease in net sales for the third quarter compared to the prior year.
• Short-cycle sales decreased by 9%, largely due to US policy uncertainty and economic softness in Europe.
• The company experienced a $3.1 million impact from factory closure activities and ramp-up costs in Monterrey, Mexico.
• There was a $2 million increase in product liability expenses compared to the prior year.
• The company's net leverage ratio increased to 3 times, with expectations to remain at this level by the end of fiscal '25.

Q & A Highlights

Q: Any early prioritizations for the $70 million in cost savings and guidance on top-line synergies? A: David Wilson, President and CEO, explained that the $70 million in cost savings will focus on supply chain optimization, enhancing purchasing power, operational efficiencies, and eliminating duplicative structural expenses. Revenue synergies include leveraging global coverage, cross-selling, and simplifying solutions for customers, which are not yet built into the model and represent potential upside.

Q: How do you justify leveraging up to almost 5x amid global uncertainty? A: David Wilson, President and CEO, expressed confidence in the free cash flow generation of the combined businesses, expecting over $200 million annually. He anticipates that as regulatory approvals are obtained and policies stabilize, EBITDA will grow, aiding in leverage reduction. The company has a history of successful deleveraging post-acquisitions.

Q: Can you provide an overview of Kito Crosby's facilities and their exposure to tariffs? A: David Wilson, President and CEO, noted that Kito Crosby's facilities are generally in-region, for-region, with Japan supplying a significant amount to the US. He considers the tariff exposure to be moderate and manageable.

Q: How does Kito fit into your simplification strategy and current consolidation efforts? A: David Wilson, President and CEO, stated that Kito fits well into their growth framework, strengthening and growing the core while enabling future expansion. The acquisition aligns with their strategy to deliver a top-tier financial profile. Greg Rustowicz, CFO, added that the consolidation efforts, including the Monterrey facility, will continue as planned.

Q: What is the price multiple for Kito Crosby, and can you provide some financial metrics? A: David Wilson, President and CEO, stated that the acquisition is at an 8x post-synergy multiple and just over 10x pre-synergy. Kito Crosby has $1.1 billion in sales, a 23% EBITDA margin, and has grown at a 7% CAGR over the last three years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.