Park-Ohio targets $1.6B-$1.62B 2025 sales and record Q4 free cash flow as transformation gains momentum

Earnings Call Insights: Park-Ohio Holdings Corp. (PKOH) Q3 2025

MANAGEMENT VIEW

* CEO Matthew V. Crawford highlighted the company's ongoing transformation into a leaner, more predictable business, noting, "While many end markets, particularly here in the U.S., where we derive a majority of our sales, showed mixed demand, we were able to demonstrate consistent operating profit and margin performance." Crawford emphasized continued productivity improvements, new business, and strong backlogs as key drivers for 2026, stating, "We expect to do these things while reducing debt meaningfully during the fourth quarter and we will continue that trend into 2026."
* CFO Patrick Fogarty reported, "We refinanced both our senior notes and our revolving credit facility, extending maturity dates by 5 years and strengthening our balance sheet and liquidity." Fogarty also noted bond-related expenses of $2 million related to the redemption of previous bonds, which reduced GAAP earnings by $0.11 per share.
* Fogarty added, "New equipment orders in our industrial equipment business continue to be very strong with new bookings and backlogs at record high levels at most locations."

OUTLOOK

* The company expects full year 2025 net sales to be in the range of $1.600 billion to $1.620 billion and adjusted earnings per share to be in the range of $2.70 to $2.90 per diluted share.
* Fourth quarter free cash flow is estimated between $45 million to $55 million, with full year free cash flow projected at $10 million to $20 million.
* Management stated that backlogs as of September 30 were up 28% since year-end and are expected to remain strong heading into 2026.
* Crawford said, "We firmly believe that in 2026, will be another important step forward as we combine these productivity improvements with new business and strong backlogs."

FINANCIAL RESULTS

* Third quarter revenue totaled $399 million, with stability across all business segments sequentially.
* Gross margins for the quarter were 16.7%, slightly below the prior year, which management attributed to pricing discipline and operational consistency.
* Adjusted EPS was $0.65 per diluted share in the quarter. EBITDA was $34.2 million with an EBITDA margin of 8.6%.
* The company recorded an income tax benefit of $4.5 million on pretax income, resulting in an expected full year effective tax rate between 13% and 16%.
* Positive operating cash flow of $17 million was generated during the quarter, compared to $9 million last year.
* Liquidity as of September 30 was $187 million, including $51 million cash on hand and $136 million unused borrowing capacity.
* Supply Technologies net sales were $186 million. Adjusted operating income in this segment totaled $18 million, with operating margins increasing to 9.9% compared to 8.9% last quarter.
* Assembly Components sales improved sequentially to $97 million, with adjusted operating income of $6 million.
* Engineered Products segment sales were $116 million, with adjusted operating income of $3.7 million.

Q&A

* Christian Zyla, KeyBanc: Asked about accounting for large orders in the EP backlog and timing of revenue recognition. Fogarty explained, "Our contracts in that part of our business are accounted for using the percentage of completion method. So as it relates to the large order of $47 million, it represents 5 pieces of equipment. We expect 3 of the 5 to be recognized during the course of 2026, with the latter 2 in the following year in 2027."
* Zyla, KeyBanc: Inquired about margin pressure from front-end investments in EP and if these would abate in 2026 or 2027. Crawford responded, "I do feel as though there has been margin pressure, not from the customer standpoint, not from the market standpoint, but really around preparing this business for what we anticipate is going to be a heck of a run here on this backlog."
* Zyla, KeyBanc: Asked about timing of margin improvement. Fogarty stated, "Margins will begin to improve as each individual contract is priced uniquely...we would expect margins in the industrial equipment side of our business to continue to improve."
* Zyla, KeyBanc: Questioned free cash flow guidance and drivers for Q4. Fogarty indicated the improvement is mainly from harvesting receivables and reducing inventory, saying, "We now see lead times reducing dramatically. So that helps days on hand. That helps our inventory levels, and we're seeing that happen."
* David Storms, Stonegate: Asked about impacts of a government shutdown. Crawford replied, "I don't have any explicit examples of that...not in a way that would be important to explicitly discuss."
* Storms, Stonegate: Inquired about pricing sustainability in Supply Tech. Crawford emphasized, "I think it's less today about pricing than it is about competitive -- improving our competitiveness as well as getting operating leverage that comes with some incremental volume."
* Storms, Stonegate: Asked about AI implementation. Crawford said, "Our investments in information technology...now include harnessing AI around cleaning data, around managing data, around investing in data management tools."
* Storms, Stonegate: Requested specifics on debt reduction. Fogarty stated, "Of the $45 million to $55 million, we would expect $35 million to $45 million of debt reduction."

SENTIMENT ANALYSIS

* Analysts exhibited a neutral to slightly positive tone, focusing on backlog execution, margin improvement, and free cash flow drivers; questions were probing but constructive.
* Management maintained a confident and forward-looking tone in both prepared remarks and Q&A, using phrases like "We firmly believe" and "This is an exciting time," while also acknowledging some short-term pressures and transition costs.
* Compared to the previous quarter, management's optimism regarding transformation and backlog momentum was more pronounced, while analysts maintained a similar level of cautious inquiry.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for 2025 net sales and adjusted EPS was revised down from the previous range of $1.62 billion to $1.65 billion and $2.90 to $3.20 per diluted share to $1.600 billion to $1.620 billion and $2.70 to $2.90 per diluted share.
* Fourth quarter free cash flow guidance was introduced at $45 million to $55 million, with full year free cash flow guidance lowered to $10 million to $20 million from the prior $20 million to $30 million.
* Backlogs increased 28% since year-end, compared to a 19% increase noted last quarter.
* Management continues to emphasize transformation, margin improvement, and debt reduction, but now places greater emphasis on execution of record backlogs and preparation for future growth.
* Analysts' focus remains on backlog conversion, margin trajectory, and working capital efficiency.

RISKS AND CONCERNS

* Management cited mixed demand signals in several end markets, particularly North America and Asia.
* There are ongoing margin pressures in Engineered Products due to front-end investments and preparation for large orders.
* Working capital inefficiencies and volatility in supply chains present ongoing challenges, though management expects improvements in Q4 and beyond.
* Macro risks such as tariffs and government shutdowns were raised but not identified as having immediate material impact.

FINAL TAKEAWAY

Park-Ohio Holdings Corp. management underscored the success of its ongoing transformation, reporting stable revenues, robust backlogs, and strong liquidity despite mixed end-market demand. The company is targeting 2025 net sales of $1.600 billion to $1.620 billion and anticipates record fourth quarter free cash flow, with significant debt reduction expected by year-end. Management highlighted the strategic importance of its investments in technology, operational efficiency, and backlog execution—factors anticipated to drive margin improvement and position the company for further growth in 2026 and beyond.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/pkoh/earnings/transcripts]

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