MSA Safety Incorporated (NYSE:MSA) Q3 2023 Earnings Call Transcript

Stanley Elliott: And then lastly, on the guide and the updated guide, 4Q is kind of implying a return to mid-single-digit sort of sales level. Was there anything specifically causing that? Maybe it sounds like the backlogs are still pretty elevated, same with order rates? Or is it just more kind of a return to some normalization?

Lee McChesney: Yes. That’s — I’ll say, I appreciate the question because it’s important to note that. Hey, the fourth quarter for us is what we’ve talked about, it was going to be a return to mid-single-digit zone. We are — you have the normal caveats to that. We’re not assuming — we’ll believe this normal seasonal reduction in backlog, but we’re not assuming the backlog is going to get better per se. So that could be maybe a potential opportunity. We’re going to continue to remain conservative on industrial PPE. It’s definitely performed better throughout the year, but it is decelerating. So we’re going to be pretty cautious with that as well. And then we are going to lap these price changes, Stanley. So if you think about where we performed, we’ve obviously quite done well on — from a volume perspective, but certainly, prices helped as well.

So we’ll be down to really about 1.5% price increases and then we’ll be more into more and more balanced zone as we look forward here.

Stanley Elliott: Perfect. Thanks guys and best of luck.

Nish Vartanian: Thank you, Stanley.

Operator: The next question comes from Larry De Maria from William Blair. Please go ahead.

Larry De Maria: Thanks. Good morning.

Nish Vartanian: Good morning.

Lee McChesney: Good morning, Larry.

Larry De Maria: Hey, guys. Nice quarter. Staying on that topic, maybe you could — on this fourth quarter, usually, we see a nice big sequential uptick in earnings. It’s not quite the case this year. I know there’s some puts and takes. But first of all, how do we think about incrementals? Should we stay in the upper end of that 30% to 40% range? And when would the next theoretic price increases be? I assume early next year, but maybe you can just clarify for us and your ability to push through price continuing.

Nish Vartanian: Lee, why don’t you take that?

Lee McChesney: Yes. So I think — normally, Larry, I think the first place I’d point you to is the gross margins will drop off a bit. There’s definitely a mix element to that from 3Q to 4Q. You didn’t see that last year because you had the improvements in the supply chain, really some good growth in detection and things like that. But you will see that come down. But, I mean, the — I would always say to you mid-single-digits, 30% to 40% incrementals, there’s always an anomalies to that, depending on the year-over-year. We had a particularly strong fourth quarter last year. So I think you’ll see the incrementals in the fourth quarter be a little bit lower, but that’s really just uniqueness to the quarter and things like that. As we look forward it’s still very much mid-single-digit, 30% to 40% incrementals and really nice strong cash flow as well.

Larry De Maria: Okay. And then when you say lower incrementals, you mean on the lower side of 30 to — lower than 3Q?

Lee McChesney: Yes, I’d say lower than 3Q and probably a little bit lower than the 30% to 40% just because of those anomalies, because we are on the very high side in the fourth quarter last year, Larry.

Larry De Maria: Got you. Okay, and your ability to continue to push through price. When would the next kind of cadence for that cycle at?