Sign in
AF

Atmus Filtration Technologies Inc. (ATMU)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 delivered a clean beat on both revenue and EPS, driven by share gains, a one-time Stellantis Ram MY25 launch stocking benefit, and steady pricing; management raised FY25 revenue, margin, and EPS guidance. Sales were $447.7M (+10.9% YoY) with adjusted EPS of $0.69; guidance moved to $1.72–$1.745B revenue, 19.5%–20.0% adj. EBITDA margin, and $2.50–$2.65 adj. EPS .
  • Mix and new U.S. tax law lifted the effective tax rate to 23.6%, tempering EPS leverage, while logistics costs remained a headwind to gross margin; management flagged temporary Q4 “hypercare” IT costs that imply a modest step-down in Q4 margins despite a higher full-year bar .
  • Capital returns accelerated: $30M repurchased in Q3 ($61M YTD; $81M since program inception) and a 10% dividend hike to $0.055/share; separation from Cummins is complete, giving full operational control and a fully integrated distribution network .
  • Stock-relevant catalysts: visible beat/raise, separation completion (execution/timing risk removed), tangible capital returns, and clarity on tariff pass-through (“price-cost neutral” stance) offset by macro softness in U.S. first-fit and a flattish aftermarket into 1H26 .

What Went Well and What Went Wrong

  • What Went Well

    • Beat and raise: Sales $447.7M (+10.9% YoY) and adjusted EPS $0.69; FY25 guidance increased across revenue, adj. EBITDA margin, and adj. EPS ranges .
    • Structural execution: Completed operational separation, achieving full control of distribution network; availability improvement cited as a driver (CEO: “We are now focused on unlocking the growth potential of Atmus.”) .
    • Capital returns: Repurchased $30M in Q3 ($61M YTD) and raised dividend 10% to $0.055; CEO emphasized ongoing repurchases at ~1.5%–3% of current market cap for FY25 .

  • What Went Wrong

    • Higher tax rate: ETR rose to 23.6% due to earnings mix and recent U.S. legislation, pressuring bottom-line conversion despite operating strength .
    • Logistics costs: Gross margin expansion (+130 bps YoY) was partially offset by unfavorable logistics expenses, which management continues to manage .
    • Near-term margin cadence: Temporary IT “hypercare” and other inefficiencies imply a lower Q4 margin run-rate versus earlier quarters, even as FY25 margins rise in guidance .

Financial Results

Quarterly trend (2025 YTD)

MetricQ1 2025Q2 2025Q3 2025
Net Sales ($M)$416.5 $453.5 $447.7
Gross Margin %26.5% 28.9% 28.9%
Adjusted EBITDA ($M)$81.7 $95.1 $91.5
Adjusted EBITDA Margin %19.6% 21.0% 20.4%
GAAP Diluted EPS ($)$0.54 $0.72 $0.66
Adjusted EPS ($)$0.63 $0.75 $0.69
Cash from Operations ($M)$28.7 $44.4 $82.1
Adjusted Free Cash Flow ($M)$19.8 $35.5 $71.8
Effective Tax Rate (%)21.3% 21.9% 23.6%

Q3 YoY snapshot

MetricQ3 2024Q3 2025
Net Sales ($M)$403.7 $447.7
Gross Margin %27.6% 28.9%
Adjusted EBITDA ($M)$79.1 $91.5
Adjusted EBITDA Margin %19.6% 20.4%
GAAP Diluted EPS ($)$0.52 $0.66
Adjusted EPS ($)$0.61 $0.69

Consensus vs. actual (Q3 2025)

MetricConsensusActual
Revenue ($M)415.0*$447.7
Primary EPS ($)0.599*0.66 (GAAP diluted)
  • Note: Adjusted EPS was $0.69 (non-GAAP reconciliation: +$0.04 one-time separation less $0.01 tax) .
  • “Consensus” values marked with an asterisk (*) are Values retrieved from S&P Global.

KPIs and balance sheet

  • Liquidity: $218M cash + $400M undrawn revolver = $618M liquidity; Net debt/Adj. EBITDA (TTM) = 1.0x .
  • One-time items: Q3 adjusted EBITDA excludes $3.7–$4.0M separation costs; EPS add-back $0.04 less $0.01 tax .

Drivers and mix commentary

  • Sales +10.9% YoY were driven by volume (+6%), pricing (+4%), and FX (+1%); logistics costs partially offset gross margin .
  • Stellantis Ram MY25 launch stocking boosted Q3 volumes across first-fit and OEM aftermarket; management does not expect this stocking spike to repeat .
  • Aftermarket remained flattish; U.S. heavy/medium-duty first-fit markets are expected down 20%–25% YoY amid regulatory uncertainty (EPA 2027) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY 2025$1,685–$1,735M $1,720–$1,745M Raised
Adjusted EBITDA MarginFY 202519.25%–20.0% 19.50%–20.0% Raised (midpoint)
Adjusted EPSFY 2025$2.40–$2.60 $2.50–$2.65 Raised
JV Income (planning)FY 2025—$32–$35M Provided/updated
Effective Tax Rate (planning)FY 2025—22%–24% Provided/updated
Interest Expense (planning)FY 2025—~$33M Provided/updated
D&A (planning)FY 2025—~$30M Provided/updated
Capital Expenditures (planning)FY 2025—$40–$45M Provided/updated
Quarterly DividendOngoing$0.05 (prior) $0.055 (10% increase) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q3)Trend
Tariffs/pricing stancePrice-cost neutral, tariff pricing ramp through year; USMCA exemptions prioritized; scenario planning active .Section 232 still evolving; assume USMCA exemption continues; maintain price-cost neutral via mix of mitigation and pricing .Ongoing but increasingly operationalized; stable stance.
Supply chain & distributionQ1: Belgium DC normalization; ~95% transitioned . Q2: 100% distribution under Atmus control .Full separation complete; availability improved, ~1% benefit cited .Execution complete; incremental availability tailwind.
Aftermarket demandQ1: Midpoint flattish; no 2H rebound assumed . Q2: Slightly positive ±1.5% range .Flattish persists; no turn seen until at least 1H26 .Flat for longer; cautious tone.
First-fit markets/EPA 2027Q1: Regulatory reviews; no pre-buy assumed . Q2: U.S. HD/MD down 15%–25% .U.S. HD/MD expected down 20%–25% in 2025; uncertainty remains .Incrementally weaker outlook.
Data center gensets (AI infra)—Strong trend; exposure via Cummins; limited aftermarket intensity; pursuing new OEM wins .New emphasis; potential medium-term growth vector.
Operational separationQ1: On track; year to complete . Q2: On track for Q3 completion .Completed in Q3; TSAs ended; hypercare in Q4 .Milestone achieved; temporary Q4 inefficiencies.
M&A into industrial filtrationQ1: Pipeline; disciplined approach . Q2: Robust pipeline; size flexible .Increased market activity; continue disciplined review .Steady commitment; optionality maintained.
Stellantis Ram MY25 launch—One-time stocking drove higher Q3 volumes; not expected to repeat .One-time boost; normalizes ahead.
Capital returnsQ1: $10M buyback; dividend $0.05 . Q2: $20M buyback; capital allocation flexible .$30M buyback; 10% dividend raise; expect 1.5%–3% of market cap repurchased in FY25 .Accelerating capital return with balance-sheet capacity.

Management Commentary

  • “We completed our full operational separation from our former parent company… We are now focused on unlocking the growth potential of Atmus.” – Steph Disher, CEO .
  • “Sales were $448 million… an increase of 10.9%… Adjusted EBITDA was $92 million, or 20.4%… Adjusted EPS was $0.69.” – Prepared remarks .
  • “We are raising our expectations for total company revenue to be in a range of $1.72–$1.745 billion… adjusted EBITDA margin to be in a range of 19.5%–20%… adjusted EPS… $2.50–$2.65.” – CEO .
  • “We saw additional stocking for [Stellantis Ram MY25]… We do not expect that to repeat in future quarters.” – CEO .
  • “The effective tax rate… was 23.6%… driven by… mix of earnings… and changes in recently enacted U.S. tax legislation.” – CFO .
  • “Our intent on tariffs is to be price-cost neutral… through a variety of mechanisms.” – CEO .

Q&A Highlights

  • One-time volume tailwind: Stellantis Ram MY25 launch stocking elevated Q3 volume but should not repeat; underlying share gains lifted full-year share assumption to ~3% from 2% .
  • Aftermarket duration: Freight-driven aftermarket softness likely persists through Q4 and into 1H26; no near-term inflection assumed .
  • Tariffs and pricing cadence: Maintain price-cost neutrality; USMCA exemption assumed; mid-year/tariff pricing implemented outside normal cycles to reduce lag .
  • Data center exposure: Positive secular backdrop for backup power gensets; strong Cummins position; limited aftermarket intensity; pursuing new first-fit opportunities .
  • Q4 margin shape: Post-separation “hypercare” and IT stabilization costs to temporarily weigh on Q4 margin despite solid FY25 margin guidance .

Estimates Context

  • Q3 2025: Revenue $447.7M vs. consensus $415.0M*; GAAP diluted EPS $0.66 vs. consensus Primary EPS $0.599*. Adjusted EPS was $0.69 (company-reported) .
  • FY 2025: Company guidance $1.720–$1.745B revenue and $2.50–$2.65 adj. EPS vs. S&P Global consensus revenue $1.741B* and Primary EPS $2.635*; guidance sits at/near consensus on revenue and within the consensus EPS range .
  • FY 2026: S&P Global consensus revenue $1.815B* and Primary EPS $2.781* (context for outer-year trajectory).
  • All items marked with an asterisk (*) are Values retrieved from S&P Global.

Key Takeaways for Investors

  • Quality beat/raise with strong cash generation: revenue and EPS beats plus higher FY25 ranges, while adjusted FCF inflected to $72M in Q3 .
  • Execution de-risked: separation complete and distribution fully in-house, supporting availability, share gains, and customer reliability .
  • Near-term margin watch: temporary Q4 “hypercare” costs imply a sequential margin dip before normalization; logistics costs remain an area to monitor .
  • Macro/sector mix: Aftermarket remains resilient but flattish into 1H26; U.S. first-fit headwinds persist amid EPA 2027 and tariff uncertainty .
  • Capital returns underpin: accelerated buybacks, dividend raised; liquidity and 1.0x net debt/Adj. EBITDA offer flexibility for M&A and returns .
  • Tariff mitigation credible: USMCA utilization and operational levers enable price-cost neutrality, reducing downside risk to margins .
  • Optionality in AI-adjacent power: data center genset demand offers cyclical offset via first-fit, though aftermarket benefit is limited; business development expanding beyond Cummins .