Drop in demand takes Allient sales down 7%
Allient Inc. reported its second quarter revenue was $136.0 million with a gross margin of 29.9% and net income of $1.2 million.
Results include the acquisitions of Sierramotion Inc. in September 2023 and SNC Manufacturing in January 2024. The company also announced it has advanced its Simplify to Accelerate NOW plans to realign its manufacturing footprint and streamline the organization to enhance operational efficiency and improve earnings power.
“Despite strong efforts from our team, we saw a significant demand shift during the month of June, with a notable decline in the industrial market related to automation and the recreational industry combined with lesser declines in other served markets," said Chairman and CEO Dick Warzala. "Lower than anticipated revenue combined with inventory reserves related to a customer bankruptcy and current gross margin dilution as expected from our most recent acquisition had a measurable impact on earnings in the second quarter.
“Further, the market conditions we have seen are expected to persist through the second half of 2024 resulting in an annualized revenue run rate level below $500 million over the next several quarters," he continued. "The run rate reduction is largely due to significant inventory rebalancing at some of our larger customers surfacing as the supply chain has returned to more normal conditions. While the full year results will exceed the projected third and fourth quarter annual run rate, we do expect customer inventory adjustments will be substantially complete in early 2025 with a return to normal run rates in mid-2025. As a result, our Simplify to Accelerate NOW plan has greater importance and we are taking additional significant steps to align the business with market conditions while continuing to execute programs that we expect will drive our future growth. Despite the vagaries of near-term global market conditions and the challenges our customers are facing, we remain confident in our long-term strategy and the underlying strength of our value proposition.”
Simplify to Accelerate NOW Savings
The expected annual savings from the initial manufacturing consolidation and streamlining efforts implemented in the second quarter are approximately $5 million and will begin to be realized in the second half of 2024. Restructuring and related charges of approximately $1.5 million were recognized in the second quarter of 2024. The charges are primarily cash and are related mostly to severance costs.
A primary emphasis of the restructuring includes the transfer of certain production activities from various U.S. operations to the Company’s existing lower cost facilities in Mexico. In addition, the Company has implemented reductions to its workforce in many operations throughout the world; to reflect the reduction in sales it is forecasting for the remainder of 2024.
Warzala added, “These actions to realign operations and rationalize production are elements of our overall strategy to refine our organizational structure, eliminate redundancies and optimize our operations. As we simplify our enterprise, we believe we can better serve our customers and strengthen our long-term competitiveness by making Allient easier to do business with while increasing our speed to market with new product innovations. Importantly, we are also better positioning the Company for the current macro environment and industrial headwinds. We expect to advance additional efforts over the next six months to achieve the $10 million in savings we initially targeted. In addition, we are identifying further rationalization actions beyond the initial $10 million target that will ensure we emerge as a stronger, more resilient enterprise with higher earnings power.”
Second Quarter 2024 Results (Narrative compares with prior-year period unless otherwise noted)
Revenue decreased 7%, or $10.7 million, to $136.0 million. The impact of foreign currency exchange rate fluctuations was unfavorable by $0.7 million. Sales to U.S. customers were 52% of total sales compared with 58% in the second quarter last year, with the balance of sales to customers primarily in Europe, Canada and Asia-Pacific. See the attached table for a description of non-GAAP financial measures and reconciliation of revenue excluding foreign currency exchange rate fluctuations.
Sales in the Vehicle markets decreased 17% due to lower demand in powersports and agriculture, partially offset by higher demand within commercial automotive. Industrial markets sales were down 3% in the quarter as strengthened power quality sales, largely to the HVAC/data center market, as well as incremental sales from the recent acquisition were more than offset by lower demand in industrial automation, pumps, and material handling. Medical market revenue was down 8% given broad end-market lower demand and Aerospace & Defense sales decreased 3%, due to program timing within the industry.
Gross margin was 29.9%, down 140 basis points from the prior-year period, which reflects lower volume, expected margin dilution from the recent acquisition, approximately $1.2 million in non-cash inventory reserves, and unfavorable mix.
Operating costs and expenses were 26.3% of revenue, up 320 basis points, of which 110 basis points was attributable to restructuring and business realignment costs of $1.5 million. Also impacting the increase in operating costs was higher engineering expenses due to the recent acquisitions. As a result, operating income was $4.9 million, or 3.6% of revenue, compared with $12.0 million, or 8.2% of revenue.
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